Google’s Appeal Might Complicate Calculating Patent Damages

Scott Weidenfeller’s commentary was included in an IAM article about the U.S. Court of Appeals for the Federal Circuit’s decision to grant a rehearing of Google’s appeal of a $20 million patent damages award.

Scott points out that “the case provides the full Federal Circuit an opportunity to address important patent damages issues, including apportionment between patented and unpatented features, and whether a license agreement with a lump-sum payment can be used to establish a reasonable royalty on a per-unit basis.”

He adds that “the royalty rate a licensee has been willing to pay to license a patent or patent portfolio should be very good evidence of what rate is reasonable.” “Limiting patent owners’ ability to rely on such licenses as a basis for damages risks taking a critical tool for establishing a reasonable royalty rate away from patent owners,” Scott said. “Requiring scrutiny into whether a license agreement is appropriate for setting a reasonable royalty rate, as Google argues is appropriate, risks the exclusion of highly relevant evidence in the damages inquiry.”

Scott explains why patent challengers feel a license agreement with a lump-sum payment for past and expected future sales would not be appropriate to establish a reasonable royalty rate. “A small company seeking to avoid litigation may make a lump-sum payment to take a license to the patent that is not based on a per-unit royalty,” he says, providing an example of a company that has made few sales of the accused product, but faces significant potential expenses from litigation. “Other companies that have made substantially more sales might only be willing to pay a similar lump sum to avoid litigation, so determining a damages amount based on a royalty rate calculated from the smaller company’s lump sum payment would not be appropriate,” Scott  points out.